[NEWS ANALYSIS] Korea losing global tech race with subpar gov't support

Countries like India and Japan are going all out to woo global tech companies, posing a threat to Korea and its tech sector with subpar incentives and insufficient aid from the government.

Samsung Electronics' chip manufacturing complex in Hwaseong, Gyeonggi [YONHAP]

Countries like India and Japan are going all out to woo global tech companies, posing a threat to Korea and its tech sector with subpar incentives and insufficient aid from the government.

Global chipmakers like Intel and TSMC are pouring billions of dollars into these countries that are scrambling to become manufacturing hubs in the intensifying tit-for-tat between Beijing and Washington.

Korea, however, is out of the race due to the government's passive attitude toward giving out incentives. Now even local companies are making investments outside of the country.

The Indian government recently announced that it will offer $10 billion in incentives to chip companies that build manufacturing plants in the country. That's an 8 percent increase from the initial $9.3 billion announced in 2021.

Global companies are welcoming the announcement, with big names such as Micron Technology and AMD rushing to invest in the South Asian country.

Idaho-based Micron in June said it will invest $2.75 billion to build a chip plant in Gujarat, on the western coast of India.

California’s AMD said it plans to invest around $400 million in India over the next five years and set up its largest R&D facility in Bengaluru, often called the “Silicon Valley of India.”

People walk past a Huawei store with advertisements for the Mate 60 series smartphone, at a shopping mall in Beijing on Aug. 30. [REUTERS/YONHAP]

Japan is providing a 40 percent subsidy to TSMC, an unrivaled player in the contract chip manufacturing business with more than 50 percent market share, for its new $8.6 billion chip foundry factory to produce auto chips and image sensors in Kumamoto, Japan.

The Japanese government is also offering a 200-billion-yen ($1.4 billion) incentive to Micron Technology for its Hiroshima plant.

“With the ‘untact,' or contactless, industry growing after the pandemic, and with tension intensifying between the United States and China, the clock for the technologies of the fourth industrial revolution has been ticking faster,” said Kim Sei-wan, an economics professor at Ewha Womans University.

“‘Future technologies’ have now become the core tech for countries to feed their people,” Kim added. “And this is why governments are racing [to attract global companies.]”

European countries are no exception, with Germany offering 10 billion euros ($10.7 billion) for Intel's planned chip factory in the city of Magdeburg. That incentive is around one-third of the company’s total investment in the plant.

The German government is also reviewing its incentives for TSMC’s $11 billion chip plant in Dresden.

Italy is providing a 40 percent incentive for Intel’s planned chip packing and assembly plant in the country, while Israel decided on a 12.8 percent incentive for the U.S. chipmaker’s factory there.

Korea, however, is one step behind the trend with its defensive incentive offering.

“Korea is very passive in offering incentives,” said Kang Seok-gu, chief of the KCCI’s industry policy team. “A more aggressive strategy is essential, such as offering incentives regardless of sales or profit.”

Currently, Korea is offering up to 25 percent in tax credits for so-called “strategic industries,” a list that includes chip, battery and vaccine investments. The tax credits reduce their income and corporate tax burden.

But this also means that the companies need to make some profit, so they have to pay some taxes in order to qualify for the credits.

Unlike Korea's tax credit system, other countries provide incentives in the form of cash handouts.

“The strategic businesses need at least three to four years to actually make profits,” said a source from the industry who was granted anonymity.

“But the Korean government’s policy is focused on reducing taxes from profits, so it won’t be a big help [to global companies.]”

LG Energy Solution researchers check the company's batteries for electric vehicles at its Ochang plant in North Chungcheong. [LG ENERGY SOLUTION]

Experts also pinpointed the government’s inability to follow the trend.

The current tax credit covers the biopharmaceutical industry but only applies to investments related to vaccines. This does not include many other important sectors such as biopharmaceuticals and biotechnology.

China is already chasing Korea at a rapid speed and threatening its supremacy in key technologies like chips and batteries.

Huawei introduced its latest smartphone Mate 60 Pro with a 7-nanometer processor despite U.S. sanctions on imports of technologies and related equipment.

“China is known for its outstanding adaptability, so it has the ability to make quality products with the conventional technologies it owns,” said a spokesperson for Samsung Electronics. “This is why U.S. sanctions cannot completely stop China.”

Samsung Electronics is upping its bets on the non-memory chip, but is still running after its rival TSMC.

“From the perspective of clients, having a stable supply is the most important,” said a Samsung Electronics spokesperson. “But in terms of foundry capacity, TSMC has around three to four times the capacity [of Samsung.]"

Korean battery makers are also losing ground to Chinese players in the global market.

The combined market share of Korea’s three largest battery makers — LG Energy Solution, SK On and Samsung SDI — stood at 23.9 percent in the first half, down 2.2 percentage points from a year earlier, according to data from market tracker SNE Research.

During the same period, the combined share of Chinese firms, including CATL, held 57.1 percent, thanks to the growing demand for cheaper LFP batteries.

China also took the No. 1 spot in the global display market with 42.5 percent compared to Korea’s 36.9 percent, with liquid crystal display (LCD) panels outselling Korea’s organic light-emitting diode display (OLED) panels, where Korean companies hold a firmer standing.

“China’s LCD panels cost one-tenth of the price of Korea’s OLED panels,” said a source from the display industry. “But consumers don’t really feel the difference between the two, so Korean companies are losing their customers to Chinese players.”

BY LEE SO-AH, SARAH CHEA [chea.sarah@joongang.co.kr]